September in Europe: Changing Leaves & Boards

Management Boards[1] in Europe and Central Europe have been slowly undergoing changes. On the one hand, the US and the UK investment companies have invested in several local Banks, turning them around and changing the profiles of the new board in South East Europe as well as the fall-out of Brexit with UK banks entering the German market. This has had the ripple effect of changing several things:

The hands-on C level. We´ve been seeing this since 2014 but it is more pronounced now than ever, due to ever increasing regulatory changes and in preparation for the GDPR – the strong, highly punitive regulation which makes board members personally responsible for data privacy violations in addition to draconian fines on the corporation. In banking, this has driven the IT /data function to often be under the CRO responsibility.

More international presence – leading to a more positive acceptance of international senior level people in either the Management Board or the Supervisory Board. This in turns drives the culture of the institution as it converts from thinking locally or regionally to one of superior standards and more ambitious goals. It also leads to more openness to change and accepting that change is just a normal process.

Digitalization of all industries is also drawing the world closer together as members of both boards are being educated or working with external advisors of a different global scale.

Both Supervisory and Management Boards need greater functional background experience due to the need for transformational change / strategies and the lack of know-how within a given company or industry sector. For example, in the Financial Services industry senior leaders with backgrounds in FMCG or telco industries are in demand.

Indecision as a phenomenon. Both at the External director level and the Management board level, the era of indecision is upon the European world. The fear of making a mistake in hiring or and error in strategy because of market unpredictability has caused delays and gaps in hiring as profiles become moving targets. This has been felt across the board due to the uncertainty of markets, uncertainty of political elections in Germany, Austria, etc, and, of course, the uncertainty concerning the US policies with regard to Russia, and North Korea.

The most important of the recent trends is the concern about Gender Representation at the top. This is becoming an urgent and important issue both at the Management board and Supervisory Board external director level. The challenge for Management Boards is the limited number of female candidates in Western Europe, in particular in Germany and Austria, who are in the right positions for succession. On the Supervisory Board level, this problem is accentuated by regulations now limiting the number of outside director positions an individual may hold.

In 2012, Dr. Gabriele Lehner of the Vienna Cornerstone Office, wrote the book, “Supervisory Boards are female?” and a recent review indicated that the material was still valid as not much has changed in the last five years. Placing women in Supervisory Board positions has become the elephant in the European room.

Not only are mandates for both outside Directors and Management board members now indicating a preferred or specific gender request, but in countries such as Germany and Austria, it´s become an acute problem. Poorly paid in comparison to other countries and required to accept a great liability, some eligible candidates prefer to accept outside director roles outside of these countries. An EY survey of 63 publicly listed companies in Austria indicated that only 9 have women represented on their Management Board and only 2 have more than one woman (2) on their Management Board. The most common representation of expertise, in decreasing order, are Automotive sector, IT and Finance.

The European Commission in 2012 proposed that publicly listed companies have 40% female non-executive board members by 2020. This may cause the creation of accelerated succession plans which have the risk of “over-promoting” or promoting too soon. Time will tell but the clock is running – it could be that in three years , we are looking at a dramatically changed picture – driven by regulation rather than choice but definitely a positive result which should have been achieved years ago.

[1] A Dual Board or Two Tier system is either mandated or allowed in 19 of the 27 European Union countries. The Management Board deals with operational issues and the Supervisory Board is usually elected by the shareholders and guides the Management Board